Paul Verstraten (p), Gerard Verweij, Peter Zwaneveld

This article argues that the spatial decay function of agglomeration economies is much more complex than is often assumed in the agglomeration literature. We provide insight into this issue by analyzing a nationwide and spatially rich wage panel. The key finding is that wages and agglomeration are not significantly related on short distances (<5 km), while strongly and positively related on medium distances (5-10 km). This positive effect attenuates across geographic space and becomes insignificant after 40-80 km. This result, however, does not imply that agglomeration on short distances is irrelevant for productivity. The data show that areas must meet a critical threshold of agglomeration on short distances in order to benefit from agglomeration on further distances. Also, in contrast to manufacturing, we find that service industries do benefit from agglomeration within 5 km distance. Finally, this article finds no evidence that foreign economic mass affects wages in the Netherlands, which suggests that national borders are still a substantial barrier for economic interaction.

David Castells-Quintana (p)

As countries develop the percentage of total population living in urban areas (the rate of urbanisation) tends to increase. As this happens, inequality is expected first to increase and then to decline in what is known as the Kuznets inverted-U. While this relationship considers the rate of urbanisation, it does not consider the absolute size and distribution of urban areas (cities), and how these change along the process of economic development. The urban economics literature has highlighted the relevance of the size and distribution of cities for economic performance, as well as the fact that cities of different sizes experience different levels of inequality. In this line, the size and distribution of cities may be another relevant factor to take into account when studying the overall level of inequality. This is an issue that to date remains understudied. Building on insights from the urban economics literature, this paper studies the relationship between the size and distribution of cities and income inequality at country level.
To test the relationship between income and inequality, and that between city-size and inequality, the paper relies on cross-country panel data for as many countries and for the longest time span as possible. Results support the original inverted-U relationship between economic development and inequality (the Kuznets’ hypothesis). Furthermore, results are also in line with the idea that the inverted-U may now have an N shape; inequality first increases, then declines, and finally rises again. But, beyond Kuznets’ relationship between income and inequality, results also suggest a U-shaped relationship between average agglomeration size and inequality; inequality first declines and then increases with average agglomeration size. This U-shaped relationship is found to be robust to several estimation and identification techniques and a long list of controls, and is in line with insights from the urban economics literature and recent papers analysing the association between different types of urbanisation and inequality.

Daniele Mantegazzi (p), Philip McCann, Viktor Venhorst

Recent studies highlight that informal (or soft) institutions shape and are shaped by economic geography. In particular, these soft institutions (such as culture, religion and social norms) might affect economic behavior and processes in various ways, which could then lead to regional differentiation. At the same time, the literature on agglomeration economies finds ambiguous results and is inconclusive in assessing whether and how agglomeration forces produce positive, null or negative effects.
Traditional analyses of the impacts of agglomeration economies disregard whether different informal institutions heterogeneously influence the spatial extension of spillovers, linkages and agglomeration mechanisms. The aim of our research is to test whether the existence of differences in informal institutions across Dutch municipalities affects the geography of agglomeration mechanisms.
In order to consider different dimensions characterizing soft institutions in the Netherlands, we identify heterogeneity in informal institutions whenever there is a difference along the following dimensions: main language and dialect spoken, religious behavior and political ideology. Moreover, we consider whether the closeness to a national border (distinguishing between the two neighboring countries and the see) affects the spatial extension of agglomeration economies. The underlying hypothesis that our analysis aims to verify is that agglomeration effects would then encounter obstacles because of discontinuities in informal institutions.
We contribute to the existing literature by providing one of the first empirical analyses concerning the effects of discontinuities in informal institutions on the geographical extension of spillovers, linkages and agglomeration mechanisms. Our analysis considers both firm- and regional-level data and applies a cross-classified spatial multilevel model, in order to assess heterogeneity on different levels. Additionally, we focus our attention on specific sectors, in order to identify the patterns related to well-defined industries. In particular, we consider the manufacturing sector and firms operating in science, technology, engineering and mathematics (STEM).
Our estimates highlight that the spatial decay of agglomeration economies is neither unique nor homogeneous, indicating that differences in informal institutions are indeed shaping the geography of spillovers, linkages and agglomeration mechanisms.